Money for Jam
7 September 2009
Sean Russo
AUGUST 31: I RECENTLY read an interesting article about trends in television shows and what the stations (their advertisers) are demanding. The clear trend is to uplifting and positive “feel good” shows. In short, out with Big Brother and Survivor and in with Master Chef and Random Acts of Kindness.
It seems that many industry players have been astounded by the success of Master Chef, so perhaps its success is a very good reflection of being in the right place at the right time. They caught a change in trend and the current public mood is clearly ripe to what the show offered. I wonder would it have been so successful when the world was all about equities and excess two years ago. Who had time to cook then we were too busy flipping investment properties!
Advertising drives media; TV and radio ratings and daily, weekly, monthly sales of papers and periodicals are one of the fastest feedback loops out there to tap into what’s hot and what’s not. This does not just apply to glam mags and game shows, it applies to nearly all media. Advertisers don’t want to be sandwiched between bad news stories and forecasts of economic downturn. Many of them are already on the nose with punters and consumers; they want to be opposite the “green shoots” story or between the giveaways to the needy and deserving. What advertisers want, advertisers get and what they want is media that’s “on trend”.
One of the real hot points is “saving money”; it's almost impossible to watch a morning TV show, a tabloid TV current affairs show or open a popular magazine without finding tips on how to save, and how to survive the recession. Channel Nine has just launched a show “Money for Jam” –“an inspirational new series for the whole family that’s all about ideas on how to put more money in your back pocket”. But money for jam is slang for money for nothing – how late-last-cycle. Such a shame they didn’t launch it last year. Great Southern and Timber Corp would have been fighting to “sponsor” it: tax-free timber. Now there was money for jam!
One only has to look back at any market’s path in the past 18 months to know that there is a great deal of truth in the observation that markets never trade at fair value but rather fair value is the line drawn in afterwards over the market’s journey from over-valuation to undervaluation and back again. Of course that didn’t stop all sorts of people producing and broadcasting forecasts about where they saw fair value being next year and the year after (sometimes out to five years!). The punters want forecasts, the media print them.
What I don’t understand is why many CEOs and CFOs feel it’s reasonable to explain away a loss or underperformance because the market failed to trade at the price levels forecast. We often encounter companies who have struck their budget with metal prices and currency rates that were provided by one of their bankers. Some are the bank’s own forecasts, others are consensus forecasts to which the bank has contributed.
In many cases these forecasts cannot be achieved in the prevailing forward market so the company is actually budgeting on prices that it couldn’t even lock in if it wanted to. Worse, should they choose to hedge even a modest portion of their risk they would actually make it harder to achieve budget. Essentially they are setting their company up to fail.
Whenever I encounter this situation I always ask for the track record of the forecaster or of the consensus group. To date I have never met a CFO or CEO who had ever sought to establish the credibility of the forecaster. I believe the answer is simple. Deep down they know that no-one who can accurately forecast markets needs to work for a bank, newspaper or television station, but it suits their view and a year later there is someone else to blame if things don’t go to plan.
Of course if it outperforms the forecast, money for jam.
Survivor might have been usurped by Master Chef in TV land but in the real world the game remains the same “Survival of the Fittest”. It’s not about what forecast you use or whether you “beat the analyst’s expectations”. It’s all about setting your business in a manner that it can survive whatever is around the next corner. You don’t need to sell advertising so take the view that no-one knows what’s around the next bend. Remember not one of the gurus now telling you where we are headed predicted we would be here in the first place (or how we would get here).